S&P 500 Weekly Update: The Bull Market Rally Stalls At Resistance
Summary
- The S&P closes out April with the best gain in 30 years and not many believe in this market.
- Some analysts now forecast a “Wavy” economic recovery. So far, the stock market has responded with a "V" shaped rebound.
- Knowing how the stock market works goes a long way in being successful. It has been, and continues to be a time to be "selective".
- Looking for a helping hand in the market? Members of The Savvy Investor get exclusive ideas and guidance to navigate any climate. Get started today »
"I don't care how many cold, clinical, unfeeling, and antiseptic spreadsheets you use to run the money, Fear and Greed are undefeated” .... Josh Brown
Times have changed. The 50th Jazz & Heritage Festival in the city of New Orleans would typically have been in full swing this week, instead, the city remains in lockdown due to COVID19. Not even the devastation from Hurricane Katrina could cause postponement of this iconic event. Instead of mass celebration perhaps there will be some cheering as the U.S economy slowly re-opens.
Sadly there will be many that will have little to cheer about. The grim reaper in the form of a nationwide lockdown has sealed the fate of many. Despite the substantial level of relief being offered, many small businesses, particularly those that are leveraged, may still have to file for bankruptcy. The mountain of money that has been approved for distribution, while well-intended was never going to solve the issue. The sheer magnitude of the problem provides the numbing facts of what is about to take place.
There are about 28 million small businesses, but only 1.7-2 million loans have originated, and the average loan size of about $206,000 suggests that the mom-and-pop shops have not been major recipients. The handwriting is on the wall and is sending a dire message to many. For those that can hang on and get through this first body blow, there will be numerous obstacles to overcome.
Even after all states have fully reopened, psychological barriers will stop certain industries from joining the initial rebound parade. With more than 90% of all citizens practicing social distancing since March, not all consumers will be quick to get back into the swing of things and be involved in a venue that invites a crowd.
We will all be subject to the constant bombardment on how bad the virus is and that will keep fears in place for quite some time. Speculation is rampant as we are already being told to prepare for a "second wave". All of the gains in employment since 2009 have been wiped out during the 2+ month lockdown. With all of that as the backdrop, the stock market has continued to rally. For sure, WALL street has diverged from MAIN Street. Looking back many have come to realize this isn’t the first time that has happened. For others that is a signal to run and hide.
However, we should have come to realize by now that the stock market is not the economy, and it has been that way for quite some time. A simple fact that trips up investors all the time. It marches to its own tune that will tend to mystify the average person unless they come to realize how the stock market works. Suffice to say there is more to the equation on where stock prices are trading at any given point in time than the daily headlines. Yet the daily headlines, particularly those with a negative slant are what most people pay attention to. That is and always will be a recipe for failure.
I doubt anyone will argue with the view that in less than two months, the damage to the economy is beyond description. The views that it will take many years for the economy to fully recover have already surfaced. It is obvious when analysts are stuck at home for long periods they develop Kreskin like skills. Since no one has ever experienced anything like this before, common sense suggests any “models” being used by analysts are “suspect”. We might say they are as flawed as much as the original medical models that were used to conclude it was time to place the economy in a coma.
But I digress. What we do know, this is not your typical business cycle deleveraging. This is not occurring because of any “excess” that built up. Instead, this is a result of a nuclear bomb going off where the economy simply stopped functioning. The good news, there was no mass extinction of civilization. However, that does represent a HUGE problem for the millions that are tasked with trying to pick up the pieces. It is here that we will all witness the "extinction" that will now take place in the business world, as certain species will no longer exist. Rest assured that comes with plenty of human suffering that will total millions of lives being affected.
Bottom Line. Since we have never experienced this type of event, there is no playbook for how this situation will eventually be neutralized. Perhaps that is what the market is trying to figure out. Eventually, this will be overcome like all other threats to society and the stock market.
Last week I thought the S&P price action left investors Staring At The Crossroads. One day they decided to take the high road, the next they weren't so sure. Stay Tuned
U.S. data related to COVID-19 was more positive over last weekend as testing counts have risen substantially and positive test rates have slumped towards 10% nationally. Before our market opened for the week, Asia was green across the board. Japan’s Nikkei 225 surged 2.7%, while breadth for the KOSPI in Korea was robust at about 13:2 positive. In Japan, Tech and Industrials led the rally after the BoJ stepped up policy support.
All of that set a more positive tone, and with all eleven sectors higher on the day, the S&P 500 posted a 1.4% gain. The Russell 2000 was the clear winner up 4% on the day.
At the open, it did not appear that the major indices would be subject to the typical "turnaround Tuesday" routine. A 40 point S&P rally faded and turned into a HUGE reversal that saw the index close off 15 points or .50%. The reversal was a function of another “FEAR” headline regarding the virus. While the index did run into technical resistance in the morning, that headline exacerbated the move downward. The Russel 2000 was once again the winner, up 1.2% on the day. The price action had the smell of “rotation”, and month-end portfolio rebalancing.
Trading on headlines continued as Tuesday FEAR was trumped by a headline that brought out GREED. Gilead (GILD) reported positive test results for their COVID drug Remdesivir and with the majority living in a state of anxiety over the virus threat, the buyers saw a lifeline and returned in force. More importantly, this wasn’t a rally led by five stocks. That argument was taken off the table post-haste.
Advancing issues swamped declining issues by a 10-1 margin. Both the Dow and the S&P were up more than 2%. The Russell continued its record-breaking move up 5% on the day and that made it six straight days of 1+% gains. The S&P finished the month of April with its best gain in 30 years. The gain in the Dow 30 was the best in 40 years.
After such a strong rally some givebacks were in order and that commenced on the first day of the new month. Right on cue, the "Sell in May and go Away" army took over the investment scene. Another 90% down volume day produced a loss of 2.8% for the S&P, the Dow 30 was down 2.5%, and the Russell 2000 gave back 3.9%. Another "COVID Friday" where most traders were not willing to hold onto stocks over the weekend.
The S&P was flat on the week, and is down 12% year to date.
Global markets remained close to but below their 50-day moving averages. As shown in the table below, the average index is still more than 20% below 52-week highs.
Valuations remain relatively depressed, with the Nasdaq, Russell 2000, and Shenzhen Composite all trading north of 33x earnings; New Zealand is the only other country with a P/E over 20x. Dividend yields are juicy in EM and Europe, with 4-5% yields offered by Brazil, the UK, Italy, Spain, and Singapore. However, no one knows how well those dividend streams will hold up.
The most volatile stock indices are still found in the Americas, with Brazil’s wild politics fueling large swings in addition to high realized volatility for U.S. stocks relative to the rest of the world. China is the place to go if you don’t want to see big swings: Shanghai hosts the least volatile index in the world over the last month.
Economy
GDP plunged -4.8% in Q1, after Q4's 2.1% gain. It's the first contraction since Q1 2014's -1.1% and it halts the longest expansion in U.S. history. It is the weakest since the record -8.4% drop from Q4 2008. Consumption plummeted -7.6% last month, the worst on record, following a 1.8% rate of growth in Q4.
April Dallas Fed manufacturing index extended -3.7 points lower to -73.7, a new record nadir, following March's record -71.2 point dive to -70.0. There were pretty much nothing but negative signs as the region is being hit by the double whammy of the pandemic shutdowns and demand destruction, as well as the cratering in oil prices.
Richmond Fed manufacturing index dropped -55 points to -53 in April after the surprise 4 point increase to 2 in March. This is a new record low with data going back to November 1993 (the prior nadir was -44 from February 2009). The index was at 20 in January.
April Chicago manufacturing PMI tumbled another -12.4 points to 35.4 following the -1.2 point drop to 47.8 in March. This is just shy of the 32.5 low from December 2008. The index has been below the 50-breakeven since July 2019, and it's been on a rather precipitous decline from the 66.5 from July 2018 and is off from the 67.3 peaks from October 2017. The 3-month moving average fell to 44.1 from 46.6.
The seasonally adjusted IHS Markit final U.S. Manufacturing Purchasing Managers’ Index posted 36.1 in April, down from 48.5 in March and the previously released 'flash' figure of 36.9. The headline reading was the lowest for just over eleven years, despite being buoyed by the greatest deterioration in suppliers’ delivery times since data collection began in May 2007.
Chris Williamson, Chief Business Economist;
"April saw the manufacturing sector struck hard by the COVID-19 pandemic, with output falling to an extent surpassing that seen even at the height of the global financial crisis. With orders collapsing at a rate not seen for over a decade, supply chains disrupted to a record degree and pessimism about the outlook hitting a new survey high, rising numbers of firms are culling payroll numbers.”
“Consumer facing businesses are being hit by slumping demand from households as April saw widespread lockdowns, but business spending on inputs and equipment has also tumbled as companies slash production and investment.”
“Smaller firms are being hit the hardest, and also reporting the highest job losses, but large firms are also seeing the sharpest downturn on record. With infection curves showing signs of flattening, it is naturally hoped that the economic downturn will also bottom out. As restrictions are lifted, demand should gradually revive, but the trade-off between risking a second wave of infections and bringing the economy back to life looks set to be one of the greatest challenges faced by policy- and lawmakers in recent history. The process will inevitably be led by caution, meaning recovery will also be frustratingly slow.”
Construction spending report revealed a surprising 0.9% March rise, though this followed downward revisions and weak component data for new home construction. Strength was seen in public construction, which rose 1.6%, and in the nonresidential component, where analysts saw a March drop of "only" -1.3%
Consumer confidence tanked another -31.9 points to 86.9 in April following March's -13.8 point plunge to 118.8. This is the lowest level since May 2014 and follows the 6-month high at 130.4 in January.
As of April 27th, the economy has lost 2.17 times more jobs since the economic shutdown due to COVID-19 than were created from November 2007 to December 2019. Such swift and disastrous job losses have no precedent in modern times, and perhaps not since the country was founded.
The disturbing news continued this week as Jobless claims rolled in at 3.83 million raising the total since the lockdown to over 30 million unemployed. That represents 9+% of the population.
Pending home sales plummeted -20.8% to 88.2 in March. That's the largest drop in a decade and is the lowest since May 2011 and follows the 2.3% increase in February to 111.4 which was the highest since February 2017. The index is now down -14.5% y/y.
Lawrence Yun, NAR’s chief economist;
“The housing market is temporarily grappling with the coronavirus-induced shutdown, which pulled down new listings and new contracts. As consumers become more accustomed to social distancing protocols, and with the economy slowly and safely reopening, listings and buying activity will resume, especially given the record low mortgage rates.”
“The usual Spring buying season will be missed, however, so a bounce-back later in the year will be insufficient to make up for the loss of sales in the second quarter. Overall, home sales are projected to have declined 14% for the year.”
Citing results from NAR’s April 19 – 20 Flash Survey, Yun says technology tools such as virtual tours and e-signings are helping connect buyers and sellers. Fifty-eight percent of Realtors reported that buyers are using virtual tours and 43% said buyers have taken advantage of e-closings.
“Although the pandemic continues to be a major disruption in regards to the timing of home sales, home prices have been holding up well. In fact, due to the ongoing housing shortage, home prices are likely to squeeze out a small gain in 2020 to a new record high. I project the national median home price to increase by 1.3% for the year, though there will be local market variations and the upper-end market will likely experience a reduction in price.”
Global Economy
Like the U.S., early estimates of Eurozone output are only semi-reliable, but the initial reading on the scale of COVID’s shock to the European economy is drastic. As shown below, major economies shrank between 10% and 20% annualized, versus less than 5% for the US; given that the majority of time shut downfalls in April rather than March that sets up an even more disastrous Q2 data set.
Source: Bespoke
For the Eurozone as a whole, output fell almost 15% annualized, about what could be expected, while German growth looks to have been roughly –10% based on numbers released by Eurostat for the whole bloc and other national data sets. As a reminder, these numbers are subject to huge revision but are a good estimate of how sharp the impact has been. These numbers are, as currently reported, obviously historical records for the post-WW2 economic era.
New claims for unemployment in Germany exploded higher by more than 300,000 in April, a record, despite efforts to keep workers on payrolls with wage subsidies and lending. That dwarfs any prior labor market shock and sent the claims rate (a good proxy for overall unemployment in that country) from 5.2% to 5.8% sequentially.
Source: Bespoke
Data from France was arguably worse. With the country on 23 hours-per-day lockdowns, consumer spending fell a staggering 20% MoM, the worst on record by far, and a drop that wipes out two decades’ worth of real spending growth.
Source: Bespoke
ECB head Christine Lagarde announced the ECB will leave interest rates unchanged. The decision came on the same day that data revealed the 19-member region’s economy contracted by 3.8% in the first quarter — the lowest reading since records began in 1995, as the coronavirus pandemic hit business activity in the region hard.
Ms. Lagarde;
“The euro area is facing an economic contraction of a magnitude and speed that are unprecedented in peacetime.
She added that the central bank expects a GDP contraction between 5% and 12% this year.
The headline seasonally adjusted CAIXIN China Purchasing Managers’ Index, a composite indicator designed to provide a single-figure snapshot of operating conditions in the manufacturing economy, slipped from 50.1 in March to 49.4 in April, to indicate a renewed deterioration in operating conditions. That said, the decline was marginal and much softer than the record pace seen in February when many firms closed down to stem the spread of the virus.
Dr. Zhengsheng Zhong, Chairman and Chief Economist at CEBM Group;
“The Caixin China General Manufacturing PMI returned to contractionary territory in April, coming in at 49.4. China’s economic recovery was hindered by shrinking foreign demand, despite the domestic epidemic being largely contained.
1. While manufacturing output expanded at a faster clip, export orders plunged amid sluggish demand. The output subindex rose further into expansionary territory, the best performing among the five PMI subindexes and the only one above 50, reflecting further resumption of work. The gauge for new export orders dropped back sharply to a level lower than that in February, pointing to a sharp contraction in foreign demand amid the coronavirus pandemic. The subindex for total new orders worsened slightly from a relatively low level the previous month, amid shrinking overseas demand compounded by a limited recovery in domestic consumption.
2. Amid rapid production recovery and falling demand, inventories of finished goods increased relatively fast, and growth in work backlogs continued to slow. The subindexes for stocks of purchased items and suppliers’ delivery times continued to recover despite staying in negative territory, reflecting the fact that manufacturers were well prepared for production.
3. Prices of industrial products continued to fall. Amid a plunge in global oil prices, input costs dropped markedly. The gauges for input costs and output prices had the same reading in April. Meanwhile, downward pressure on the prices of raw materials including glass and steel grew amid large inventories and limited demand recovery.
4. Both the gauges for business confidence and employment dropped. Unlike in February and March, manufacturers’ confidence was not high in April as the coronavirus’s hard hit on external demand forced them to reassess the pandemic’s impact: the economic shock may be greater than previously thought, and it may take longer for the economy to recover. Amid sluggish demand, employment contracted at a steeper rate.
“To sum up, the sharp fall in export orders seriously hindered China’s economic recovery in April, although businesses were gradually getting back to work. Amid the second shockwave from the pandemic, the problems of low business confidence, shrinking employment, and large inventories of industrial raw materials became more serious. A package of macroeconomic policies, as suggested in the April 17 Politburo meeting, must be implemented urgently. It is particularly necessary to aid weak links including small and midsize enterprises and personal incomes.”
The headline au Jibun Bank Japan Manufacturing Purchasing Managers’ Index, a composite single-figure indicator of manufacturing performance – dropped to an eleven-year low of 41.9 in April, down from 44.8 in March, to signal a sharp decline in business conditions across the goods-producing sector.
Joe Hayes, Economist at IHS Markit;
"Japan's manufacturing downturn deepened in April as international supply chain paralysis intensified and global demand sank further. Factory shutdowns and below capacity operations overseas are having a cascading effect on Japanese goods producers, who in turn are cutting or completely suspending production due to closures at their clients and suppliers.”
"Declines in output and new orders are running at rates not seen since the height of the global financial crisis in early2009. Based on comparisons with official statistics, the latest survey data suggest manufacturing output declined by approximately 15% on an annual basis in April. "The outlook for goods producers in Japan will be strongly linked to the global recovery, when that eventually happens. However, the latest figures show that until we're past the peak of the COVID-19 pandemic and export demand can begin its slow recovery, a sizeable chunk of Japan's manufacturing economy is set to remain effectively shut down."
The U.K. is past the peak in coronavirus cases and P.M. Johnson says it's time to end the lockdown.
The seasonally adjusted UK IHS Markit/CIPS Purchasing Managers’ Index fell to a record low of 32.6 in April, down from 47.8 in March. The fall in the Manufacturing PMI (which is a composite of five indices) was softened by a comparatively modest reduction in stocks of purchases and record lengthening of vendor lead times.
Rob Dobson, Director at IHS Markit;
“UK manufacturing suffered its worst month in recent history in April, as output, orders books and employment all fell at rates far surpassing anything seen in the PMI survey's 28-year history. Huge swathes of industry were hit hard by company closures, weak global demand, lockdowns and social distancing measures in response to COVID-19. The only pockets of growth were seen at firms making medical and food products.”
“Supply-chains also felt the full force of the outbreak as average supplier delays rose to the greatest extent seen since PMI records began. International goods flows were constrained by delays in air freight, shipping and border control issues, and staff shortages often limited production."
“Inflationary pressures are remaining in check at the moment, linked to weak demand and collapsing global oil prices, but persistent shortages could start to drive some prices higher, notably for food.”
"The outstanding question remains how long the current restrictions will need to remain in place, and which sectors can start to safely reopen. The pressure is mounting, as the longer the global economy remains in lockdown the greater the cost to industry will grow, and the greater the likelihood that more jobs will be cut.”
At 33.0 in April, the headline seasonally adjusted IHS Markit Canada Manufacturing Purchasing Managers’ Index was down sharply from 46.1 in March, to signal a rapid decline in manufacturing sector business conditions. This reflected survey-record declines in output (index at 22.6), new orders (23.9), and employment (25.1), alongside a severe reduction in stocks of purchases.
Tim Moore, Economics Director at IHS Markit;
"Canadian manufacturers unsurprisingly recorded a survey record drop in output during April as the COVID-19 pandemic led to either complete factory shutdowns or reduced production schedules, alongside rapidly shrinking customer demand. Only a small minority of survey respondents indicated a rise in output volumes, which was almost exclusively linked to consumer essentials and production to support healthcare supply chains.”
"With manufacturers facing a drop in output of historic proportions, the latest data also highlighted by far the fastest reductions in both employment numbers and input buying since the survey began in late-2010. Business sentiment worsened to a considerable degree in April, with the largest fall seen across the investment goods category. Manufacturers widely commented on concerns about the outlook for capital spending in the energy sector, as well as uncertainty about the length of customer closures and worries about a protracted downturn in global economic conditions.”
Earnings Observations
A far as earnings estimates these days, they are nice to see now but for the most part, you can throw Q1 and Q2 in the toilet. Q3 and Q4 will offer the first clue about whether we’ll be on the road back to corporate recovery. Right now the market is trying to determine what that road will look like.
On a yearly basis here is the latest data from Refinitiv Research
SP 500 EPS dollar estimates:
2022 – $190.85
2021 – $170.04 (EST) – currently expecting +26% growth next calendar year
2020 – $134.92 (EST) – currently expecting a decline in 2020 of 17% y/y
2019 – $162.93 (actual) 1 % y/y growth
Once again, I would not put too much conviction in any earnings estimate these days.
However, this is where selectivity in an investor’s approach is key. ANY company raising their guidance or their dividend in this environment is an immediate candidate for additional research. These are highlighted weekly as part of the Savvy Investor Marketplace Service.
The Political Scene
Bipartisan interest is growing for another round of significant fiscal relief legislation similar to the scope of the CARES Act legislation, which could see consideration of expanded emergency funding for state/local governments, hazard pay for essential workers and frontline first responders, tax incentives for affected sectors, infrastructure measures, and expanded individual support (increased SNAP benefits/potentially another round of direct payments). Further, we expect proposals to support the energy industry given this week’s energy market volatility. The timing on an additional package may be drawn out, but the dire financial situation faced by state/local governments will ultimately be a catalyst for the advancement of additional relief measures.
The Fed
The Federal Reserve Board announced an expansion of the scope and duration of the Municipal Liquidity Facility, or MLF. The facility, which was announced on April 9 as part of an initiative to provide up to $2.3 trillion in loans to support U.S. households, businesses, and communities, will offer up to $500 billion in lending to states and municipalities to help manage cash flow stresses caused by the coronavirus pandemic.
"The facility, as revised, will purchase up to $500 billion of short-term notes issued by U.S. states, including the District of Columbia, U.S. counties with a population of at least 500,000 residents, and U.S. cities with a population of at least 250,000 residents. The new population thresholds allow substantially more entities to borrow directly from the MLF than the initial plan announced on April 9. The facility continues to provide for states, cities, and counties to use the proceeds of notes purchased by the MLF to purchase similar notes issued by, or otherwise to assist, other political subdivisions and governmental entities. The expansion announced today also allows participation in the facility by certain multistate entities."
More liquidity has been injected into the system in the last five weeks than the entire year after Lehman Brothers went bankrupt. Inducing an economic coma is very costly. Something that was TOTALLY ignored from the beginning.
The 10-year Treasury bottomed at 0.40% over the worldwide fears that are present. The 10-year note yield rallied off those lows to 1.18%. A trading range has been established under 1% now with the 10-year note closing the week at 0.64%, up .04% from the prior weekly close.
The 3-month/10-year Treasury curve inverted on May 23rd, 2019, and remained inverted until mid-October. The renewed flight to safety inverted the 3-month/10-year yield curve once again on February 18th, and that inversion ended on March 3rd. The 2/10 Treasury curve is not inverted today.
Source: U.S. Dept. Of The Treasury
The 2-10 spread was 30 basis points at the start of 2020; it stands at 44 basis points today.
The Technical Picture
The Short term view continues to raise many questions. A 30+% rally that met overhead resistance, and a quick reversal. Volatility picked up again this week, leaving the S&P 500 between support and resistance.
Chart courtesy of FreeStockCharts.com
While some have already jumped to the conclusion that the rally has ended and the index is off to revisit the March lows, I prefer to take it one step at a time. Given the run off the lows, there should be little surprise that a reversion to the mean was in order. The index could very well settle into a trading range until the overall economic situation becomes clearer.
No need to guess what may occur; instead it will be important to concentrate on the short-term pivots that are meaningful. However, the Long Term view, the view from 30,000 feet, is the only way to make successful decisions. These details are available in my daily updates to subscribers.
Short term views are presented to give market participants a feel for the current situation. It should be noted that strategic investment decisions should NOT be based on any short term view. These views contain a lot of noise and will lead an investor into whipsaw action that tends to detract from the overall performance.
Now that we poured trillions into the economy to offset the induced economic coma, we all have to ponder how many millions of Americans might be affected down the road as the unintended consequences will start to mount up.
The former governor of New Jersey wrote an interesting article on the virus threat and our American way of life. Further suggesting the latter can and must be restored. The CEO of Dow chemical makes a strong case for why this country can get back to work safely. Republicans, Democrats, and Independents, along with those that don’t vote, make up the 30 million that are now out of work.
The claim from day one on the virus scare was our healthcare system was going to be overrun. People would be left without beds, ventilators, and hospital staff to care for them. It never happened. The balance was upset dramatically when the lockdown was established so much it has swung far to the other side of the pendulum. An unintended consequence that affects the healthcare system in a very negative way. Patients that need care aren't getting that care and they DO NOT have coronavirus.
Individual Stocks and Sectors
Growth, in a low growth environment. Investors will pay up for any company that demonstrates they can continue to manage their business efficiently and grow their top line. That becomes a HUGE positive in a weak economy, and there are many companies now reporting they can do just that.
Large tech companies are money machines. They will weather this COVID storm and may come out the other side even stronger than before. It’s fairly common to hear the detractors tell their tales of caution and at times show absolute disdain regarding the FAANG stocks.
That negative rhetoric regarding these companies continues to be incorrect. If an investor has listened and followed that advice, they truly have been left behind during this recovery rally. If anyone hasn’t realized how growth has been the place to be invested for years now, they may never get the message. They are but one example of where an investor has to be concentrating in the post COVID economy. In a year where the stock market was blown up in March, the Select Technology sector (XLK) is flat on the year.
Healthcare is another area that can snap back quickly. Medical procedures and general healthcare issues have been neglected during this self-induced "panic". Rest assured they can snap back to "normal"' a lot faster than many other sectors of the economy.
It is fairly obvious that the majority have not embraced the rally off the lows. At S&P 2600 it was thought an 18% bounce off the intraday low was more than enough for this Bear market rally. S&P 2700 was surely an area of great resistance and a time that warranted ‘extreme” caution. When the index rose to the 2800 range the 30% rally off the lows was dubbed “too far, too fast.” The consensus view became this Bear market rally was going to end right there.
It is never a good idea to try and outwit the market, and it certainly is never a good idea to listen to the rhetoric that always sounds so enticing when the situation around us seems so dire. These headlines tell the tale of what the consensus view is today.
"Preparing for a market collapse”, “This is one dangerous rally”, and “The Bear market will now enter a more explosive stage."
Those headlines wreak of folks that haven’t participated in the rally off the lows. Not much has changed those that continue to be wrong, continue to press their bets in the “hope” of someday making a correct call. While we should keep an open mind to ALL possibilities, I maintained all along that the better plan was to stay balanced.
“Going to an "extreme" rarely pays off. Anyone with a balanced portfolio Is reaping rewards.”
That remains a game plan that will work in this COVID environment.
There is no visibility on the earnings front, no one knows how long the re-opening will take, many “leaders” continue to view the situation using a single myopic perspective of when to re-open the economy. The anticipated roadblocks are either in place or are being constructed as we try to figure out how to cope with the financial realities of this event. This concern was highlighted in mid-April.
It's very simple now. If decisions are made to keep people out of work and we keep putting up roadblocks instead of dealing with the reality of the situation regarding this disease, then we will start to see businesses fall like dominos."
It is those impediments that continue to pose threats to the economy and stock market that all investors need to be concerned about. No one needs to hear more of the rank speculation or conjecture on what could occur regarding this virus. Let us not forget the initial speculation on what might occur is why we are sitting here concerned about the collapse of the economy today.
While the majority realizes the road to recovery after the shelter in place environment will be challenging, there are some positives. Savvy investors have reaped the rewards by recognizing that not EVERY company out there will suffer greatly. The essential businesses or subsectors of our economy that have remained open during the outbreak have shown they are doing well and will continue to grow.
Certain segments in the world of E-commerce have seen their business explode by allowing households to obtain necessary items while remaining safe at home. These trends are now firmly established and they will be part of our new way of doing things in a post COVID world. That won’t dissipate overnight.
The need for medical supplies and devices has been well documented. As a result, those companies should continue to benefit even as we return to more normal economic conditions.
Looking ahead, sectors of the economy that are not as reliant on consumers being in large crowds or within proximity of one another will be quick to benefit from pent up demand once restrictions are lifted. Streaming services have provided entertainment, videoconferencing has made telework and connecting with friends and loved ones a reality. All of the companies involved in these areas of our economy (and they are plentiful) have presented an opportunity for those that stayed BALANCED.
For sure in the near term, and perhaps maybe a lot longer than what we want to believe, not all industries and businesses will return to operations at the same pace and magnitude. Given the dichotomy in the potential rebound of companies across the economy, selectivity is MORE important than ever.
This isn’t the time to be making broad market calls. After all, those that doubted the rally and stayed with their “test of the lows” mindset find themselves wondering what went wrong.
Staying focused on the subtle messages and how the market works separates the “haves” from the “have nots”.
Please allow me to take a moment and remind all of the readers of an important issue. I provide investment advice to clients and members of my marketplace service. Each week I strive to provide an investment backdrop that helps investors make their own decisions. In these types of forums, readers bring a host of situations and variables to the table when visiting these articles. Therefore it is impossible to pinpoint what may be right for each situation.
In different circumstances, I can determine each client’s situation/requirements and discuss issues with them when needed. That is impossible with readers of these articles. Therefore I will attempt to help form an opinion without crossing the line into specific advice. Please keep that in mind when forming your investment strategy.
to all of the readers that contribute to this forum to make these articles a better experience for everyone.
Best of Luck to Everyone!
Information when you need it. In this time of uncertainty, investors cannot wait for “weekly” updates. The Savvy Investor Marketplace service has offered "Daily" updates since the coronavirus turmoil began.
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Fear & Greed Trader is an independent financial adviser and professional investor with 35 years of experience in all market conditions. His strategies focus on achieving positive returns and preserving capital during bear and bull markets and he has a documented track record of calling the equity market correctly for the 10+ years.
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Comments (398)
Now it consists mainly of mega-caps retailers, no need to worry about bankruptcy anytime soon like Lord & Taylor, JC Penney or Neiman Marcus ...
Looking forward to your wX-up findings soon.In the same vein, would you be kind enough to investigate, either via ThinkOrSwim or your Metric spreadsheet, what the minimum rise would be for $SPX by the close next Monday (2020-05-11) to generate a wX-up signal ?It is close but no cigar this week.
I am devoured by anticipation ...
I can't find an offering from Fidelity.What are your thoughts on this space?
www.mcoscillator.com/...
EEM, XLE, ITB, TAWK, EWY[2] wX-up
IHI, IHF, XLY/FIDS[3] wOX+
XLVOthers are welcome to add more to the list. :)The V-shaped recovery path similar to that of 2019-01 continues to unfold with high confidence.
As noted in past posts, chance of re-visiting the bear market low set in place on 2020-03-23 is close to ZERO. :)
T
T
I know for a fact what you say is true. I hope someone with a little bit of that cash buys my Harley. I could use the money to pay my medical insurance for the year.It is interesting to me that forty years ago I would never have thought and did not for-see. That someones medical insurance would cost more than ones 30 year mortgage payment. Or even better that ones property tax per month would be more than ones house payment. Interesting times we live in. I sure hope the FED's inflation metric is not met anytime soon. This 2% inflation is killing me.
---How dangerous is Covid-19 for the healthy sub60 years tranche of the polulation?
---Where are the Covid-19 death toll currently and where is it trending?
---How will the currently observed reduction in reported Covid-19 deaths influence the speed of the reopening of the economy?
---How will the politics of infighting between republicans and democrats influence the speed of the reopening process?
---What is the probability of a second wave?
---What is the probability of a second wave resulting in a lockdown 2.0?
---What are the long term negative consequences on small business resulting from a prolonged lockdown?
---What damage to the small business sector will not be easily reversed?
---What psychological and financial damage has been done to certain segments of society currently being thrown under the bus? How will this type of damage influence labour participation rate long term?
---What is the probability of effective treatment being developed allowing society to co-exist with the virus?
---What is the probability of society learning to co-exist with the virus in an environment where no effective treatment is available?
---How long until a vaccine is available and how effective will a vaccine be?
---How will the current regime of social distancing influence productivity in airline industries and other "people-sensitive" sectors? Remember Warren Buffett sold BRKS holdings of airline industry stocks.
---Which sectors of the economy will be the long term winners and which will be the long term losers of the current processes in society?
---How long until people revolt against lockdown? Will they revolt?
---How afraid are people of Covid-19 and how will peoples fear evolve among all these moving parts when moving forward in time?
---How will the media industry influence people in the months to come?These are among the questions Mr. Market are busy contemplating 24/7. Calibration and recalibration continously.
Wow that is a lot of how too's and you are quite blessed. Others are asking;
How do I feed my family
How can my business survive
How will I pay all my bills................. list is too longWell I would list more but I need to get in the shower. I have work to do so I can pay my bills. I'll check back when I'm done.
i was short the VIX producing a 20+% gain that is no secret but my other strategies are there for subscribers eyes and ears
Upside destination to K+ as a consequence of its recent bullish "kiss up" pattern has not yet been fulfilled.Both generals and soldiers are pressing onward and forward ...My itchy fingers have wandered off to pick up DEFN at $9.5. :)
interesting thanks 👍
runs an online poll for 24 hours every weekend from his bunker in New Zealand.
This week he has about 30% bulls and 70% bears, as lopsided a result as I can rememberIf you like people to follow for business, he is excellent. I know Steve has referenced his work.
Callum confirms this is a new record.
Guess it's time to buy?
Nicely written. Elliott Wave is looking for this countertrend rally to turn lower from this resistance point at 2900. It should last more than a few weeks as this grinds lower.GLTA
Another week has slipped by as you and your readers have readily commented on. Still feeling uncomfortable with the "lockdown warnings". Observed an overreaction again this weekend trying to control the masses seeking a breath of fresh air. What must be emphasized over and over is that the "Guardians Of The Gates" do so at the pleasure of the taxpayers. Not the reverse.Nice commentary pertaining to the "Kreskin" like individuals who seem to have a real problem just stating that at this point they do not know. Guess this doesn't make for good advertising or pay the bills. Wondering what ever happened to the media darlings who just four weeks ago were calling for the ultimate devastation of the stock market. Like a jeannie they disappear so quickly and another round of forecasters are brought through.Not much else to comment on except I did notice and enjoyed your "Food For Thought" signpost. Seems I have seen this before. It is catchy.
Be well
Best to you
thanks for the kind words i would much rather everyone be out enjoying a normal life , then at some point sit back, relax and enjoy catching up on the markets
having said that the comments continue to be the best part of these articles week after week.